Planning To Venture In Entrepreneurship? These Are Some Of The Reasons Why Business Start-ups Fail.

A section of Madaraka Stalls in Thika's Makongeni Estate.

Starting a business is one of the simplest things anyone can do for it can even be done in just a matter of hours. However, running a successful one is a completely different story.

Experts say, for every successful startup, countless others have failed, sometimes mysteriously and often fizzled away unnoticed. Very few business startups managed to hit it big in the market, but among those which have managed to wither the storm, we have seen them changing the face of business in the process.

Just as there is no one path that guarantees success, there is not one single mistake that will doom a startup to failure. Majority of the startups fail because their owners try to do things very fast and try to do so many things at the same time thereby losing sight of some of the fundamental things required to build a business. Eventually, they end up nowhere.

The key here is proper execution and strategy. New entrepreneurs need to be very careful in judging and analysing opportunities before they take them on. Logic essentially demands them to learn not only from their own experiences, but also very critical to learn from others’ experiences and especially failures. One’s attitude also typically defines the success or failure of their venture.

So, why do startups fail?

Ideas that look promising right now might not turn out to become profitable when it reaches to the public and that is when it starts to hit back.

Inadequate business planning.

Most of business owners underestimate the benefits of having a business plan, for example, building your marketing strategy or making research on the market you plan to enter. Apart from that, your business planning should include strategic goals, plans, challenges, etc.

Optionality. 

One of the core strategic things that most smart people get wrong is that they overvalue optionality.  Optionality usually leads to a worse outcome than focus. Focus is the act of eliminating options.  Having multiple strategies means that the entrepreneur isn’t investing enough in the most promising plan.

The best businesses are clearly focused and say “no” to almost everything.  They deliberately cut off options and they publicly declare that they will not go into business lines in the future (even when businesses are adjacent to their core market). 

One should therefore create a strategy, execute it, have conviction in their strategy and be deterministic about what path will work and follow that path.

The absence of personal skills.

In most cases having an idea that can work isn’t enough to make it actually work. You as a business owner should have specific skills required for ruling and managing your business, such as strategic thinking and planning, leadership, financial literacy and people management skills. Those are the very basic skills that you have to have in order to keep your business successful. Unfortunately, most of people think that anyone who believes in themselves and is ready to work hard can manage their own business, and such misbelief leads exactly to a failure.

Business Model Failure

Another very common cause of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting product or service, that customers will beat a path to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers.

The vast majority of these entrepreneurs fail to pay adequate attention to figuring out a realistic cost of customer acquisition.

Connections.

Several entrepreneurs often lament about lacking enough networks and connections who can support them. They fail to recognise their own network that they could utilise. They need to network with new connections through their existing ones, which are really easy to build actually.

They can also build connections online, possess a relationship with media outlets, newspapers and several top blogs who can voice about your start up.

Ignoring the Competition.

Starting a business is not just about focusing on one’s sole business. If a startup wants to survive and thrive in the future, they need to avoid distraction, yes, but never forget or ignore the competition they have. Most startups today have a feeling that their idea is the best in the industry and it will guide them to success when the product is launched for consumers.

Many startups run out of business because their competitors did things better than them. This is due to the fact that the startups fall into this trap of not doing a thorough research on their competition.

One can beat this by either hiring a consultant or by watching your competitors’ website, following them on social media, signing up for their mailing lists, anonymously shopping at their stores, and using their products. This helps them figure out what they do better and determine how to change that.

Ignoring prospective customers.

It has always been difficult for startups to decide on whether to work on their product towards perfection or let the market test it first. Well, talking to customers about ideas and improvements is always going to work to some extent, but this might lead startups to having almost no profit at all.

The foundation of startup-success is based on validating the market and if you fail to come up with a good product, your startup is surely going to fail. The best possible way to make sure everything works well is by measuring, tracking, validating and optimising the data that you receive from your customers or clients.

  

Market Problems.

Startups succeed because they are solving a particular problem that their potential clients are experiencing. Majority of the startups fail because they are not solving a market problem. They fail because of not being product-market fit.

Vendors at Madaraka Market Thika selling vegetables on a market day.

Mistiming a product by either launching it too quickly or too slowly is detrimental to business success. They could be ahead of their market by a few years, where the potential clients being not ready for their particular solution at this stage. Rather than trying to fill a market need, some startups at times find themselves concentrating on creating solutions to non-existent market problems.

Before diving into business without analysing the prospect of the target market will surely hit back and hurt. Consumer markets today have varied interests and are phosphorous. Demands and needs change quickly and the mainstream startups that are successful today work with a vision without ignoring the market realities of now and the future.

Startups therefore need to analyse and envision the future when implementing an idea for a startup. You have to. They should ensure that enough people are willing to pay for their solutions to support a business by first understanding your potential market and what those customers want.

Pricing and cost issues.

Some startups are not able to determine the ideal price/cost point that would provide them with sufficient profit and give customers value for their money. Others find it very hard especially when they develop a great but expensive products/services that eventually lead to underperformance in sales and revenue.

To arrive at your perfect price point, you should first determine your market profitability by you determining how much business you will need in order to remain profitable at various price points. They ought to also compare those price points to their competition’s to determine whether the market will bear their price. If they plan to price their product higher than the competition’s, they will have to offer something consumers perceive as more valuable.

Money

A number of entrepreneurs explicitly cite money as a major problem. One common problem is being unable to raise additional funding needed to stay in business. It is always difficult to track investors and attract them to make investments.

What frequently goes wrong, and leads to a company running out of cash, and unable to raise more, is that management failed to achieve the next milestone before cash ran out. Many times it is still possible to raise cash, but the valuation will be significantly lower.

Another mistake startups make with money going into spending-spree. Investments and finances should be tracked, managed and put into control with a viable business model.

The right team.

The team behind the product or service can mean the difference between success and failure. Lack of understanding of critical matters by those in charge and also lacking someone to provide checks and balances when making important decisions are some reasons for failure in a business.

Startups require diversity in their office. Resources and manpower for variety of skill-sets are required to build a successful startup. Having a perfect team is about sharing strengths among each other and mitigating each other’s weaknesses.